marketwatch.com) is over $100 again. Yesterday the oil price rose 0.9% to $101, even when the stocks (S&P 500) closed almost unchanged, because of the still negative European news. Now oil costs around 30% more than in early October!
The price of oil doesn't´ have much to do with the economy these days, supply and demand doesn`t matter much. The oil price is political. It is driven by the fear that the oil supply in the near future could be endangered by political factors.
"Oil rose to a two-week high amid concern that tension between Iran and the West will intensify, threatening shipments from OPEC’s second-biggest crude producer," claimed Bloomberg yesterday (bloomberg). Last week the U.S. Senate passed a bill aimed at Iran’s central bank and the European Union tightened sanctions, Bloomberg reported further. Both political institutions are trying to stop Teheran`s nuclear program which allegedly could lead to nuclear weapons.
The spiral of rising oil prices is fueled by the fear that Teheran could retaliate and will curtail its oil exports. The tensions also could lead to a war against the Iran in which the gulf nation could close the Strait of Hormuz. This is an important waterway which is used for transporting most of the Arabian oil to the west.
The climbing oil prices are bad news for the global economy. Consumers will have to spend more at the gas pump and will have less money for shopping. The consumer expenditures also could be curtailed by rising costs for heating and more expensive products which are made from or with the help of oil (many chemicals). Rising energy prices could also implement higher interest rates to fight the inflation.
Yet, while sanctions and threats against the Iran are driving the spiral of higher oil prices, they don´t show any impact on Teheran`s policy. The Iranian government seems to continue doing what it does, ignoring all the sanctions & threats. If Europe reduces the imports of Iranian oil, as it says it will do, it still needs energy and has to get it from other sources, and then for a higher price. If the Iran has to reduce its oil exports to Europe the country easily will find other customers who are grateful for the commodity, for instance China.
This isn`t a new development. For years the conflict with the Iran - and the permanent discussion about sanctions and a possible war against Teheran - are influencing the price of oil and keeping the energy costs high. In the year 2008 sanctions and a possible war against Iran (washingtonpost see also wikipedia) were one of the reasons that the oil price jumped to $146. This oil price explosion in a beginning recession worsened the following economic downswing.
Ineffective sanctions and threats which are just driving the oil price and therefore endanger the global economic recovery are a dangerous method. They show the ignorance and the economic illiteracy of the politicians. It seems that the European Union and U.S. Senate don´t care about the risks they induce to the global economy.
And who is the winner? Iran! The country is still one of the leading oil exporters and earns the majority of its national income and wealth from oil! A policy, which raises the price of oil, gives the Iranian government more money in their hands. Rising oil prices are making Teheran stronger and are helping them to finance their expensive nuclear projects. Sanctions & threads are very counterproductive at least.